Q1 2022 Geo Group Inc Earnings Call
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And welcome to the Geo group first quarter 2022 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.
To withdraw from the question queue. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Pablo Paez Executive Vice President of corporate Relations. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining us for today's discussion of the Geo group's first quarter 2022 earnings results.
With us today are George the only executive Chairman of the Board Jose Gordo, Chief Executive Officer, Brian Evans, Chief Financial Officer, James <unk>, President of Geo secure services and Ann Schlarb President of Geo care.
This morning, we will discuss our first quarter results and our outlook, we will conclude the call with a question and answer session.
This conference call is also being webcast live on our Investor website at investors <unk> Geo group Dotcom.
Today, we will discuss non-GAAP basis information a reconciliation from non-GAAP basis information to GAAP basis results is included in the press release and the supplemental disclosure we issued this morning.
Additionally, much of the information we will discuss today, including the answers we give in response to your questions may include forward looking statements regarding our beliefs and current expectations with respect to various matters. These forward looking statements are intended to fall within the safe Harbor provisions of the securities laws.
Our actual results may differ materially from those in the forward looking statements as a result of various factors contained in our securities and Exchange Commission filings, including the Form 10-K, 10-Q and 8-K reports.
With that please allow me to turn this call over to our executive Chairman George George.
Thank you Pablo and good morning to everyone. Thank you for joining us on our first quarter 2022 earnings calls.
I'm pleased to be joined today by our senior management to review our financial results for the first quarter.
The trends for our business segments.
Our updated guidance for 2022, and our ongoing efforts to deleverage and address our upcoming debt maturities.
We continue to be pleased with the strength of our operating and financial results in the first quarter of 2022, we reported revenues of $551 million, which is down less than 5% from a year ago. Despite the non renewal of several of our <unk>.
Department of Justice contracts.
2021, and the ongoing challenges of the COVID-19 pandemic.
Our first quarter 2022, net income attributable to Geo was approximately $38 million.
Adjusting for certain noncash items in the first quarter a year ago. Our adjusted net income per diluted share. This year increased by more than 10% to <unk> 31 for the first quarter of 2022.
Our asphalt for the first quarter increase.
Increased by 5% year over year to 64 cents per diluted share.
And our adjusted EBITDA increased 15 cents <unk>.
<unk>, 15% year over year to over $125 million in the first quarter.
Okay.
Our diversified business units have continued to deliver better than expected performance over the last several quarters, which we believe is representative of the strength of our business for.
For the trailing 12 months ending on March 31.
Our adjusted EBITDA totaled approximately $484 million, which is the highest for any 12 month period in our company's history.
Looking at each of our segments in more detail our secure services owned and leased active facilities experienced a sequential increase in compensated occupancy rates of 1%.
Ending the first quarter of this year at 86% of capacity.
Our secure services owned and leased segment is comprised primarily of facilities under the contract with our three federal Government Agency partners. The Federal Bureau of prisons.
For the U.
The smarts will service in the U S immigration and customs enforcement or ice.
As we have previously disclosed the <unk> in the U S. Marshals are part of the U S Department of Justice and are subject to the president.
January 2021, executive order, which directed the U S Attorney general not to renew department of Justice contracts with privately operated criminal detention facilities.
As of the first quarter of 2022, we have one company owned facility under direct contract with <unk>, which generates approximately $38 million in annualized revenues.
Which we expect will not be renewed when the current contract option period expires at the end of September 22.
We also currently have three company owned or company lease facilities.
Under direct contracts with the U S marshals.
Annualized revenues of approximately $135 million.
One of these facilities has a contract option period that was extended for 90 days at the end of March and is now set to expire on June 30.
2022, while the other two facilities have contract option periods, which expire in 2023.
At this time, our updated guidance does not include the further renewal or extension of the facility contracts set to expire on June 30, Although we continue to work on options for keeping and facility and operation.
With respect to ice detainee populations remain below historic levels for the first quarter in part due to a number of outstanding court orders restricting the population at ice facilities, which.
Address the impact of COVID-19.
In addition population levels at ice facilities have been impacted by titled 42 Public health restrictions that were enacted in March of 2020.
In recent weeks, we have seen a progressive increase in detainee populations at ice facilities.
Additionally.
The administration recently announced that the titled 42 restrictions were scheduled to be lifted in late May. However that decision is currently undergoing a legal challenge in the federal courts.
In anticipation of the lifting of titled 42 restrictions in the U S Department of Homeland Security issued a memorandum on April 26, outlining the administration's plan for southwest border security preparedness.
Among several pillars within this plan DHS will surge additional resources, including personnel medical support and facilities to support border operations increased processing efficiency at quarter patrols stations and focusing on administering.
Consequences for unlawful entry, including removal detention and prosecution where appropriate.
While the exact timing and impact of lifting titled 42 restrictions are difficult to predict.
A longstanding service provider to ice and the U S Department of Homeland Security, We believe <unk> is well positioned to help deliver diversified services and solutions to assist the federal government.
At this time, our updated guidance for this year continues to assume only gradual modest improvements in the utilization rates across ice facilities.
In a recent development in the U S Court of Appeals for the ninth circuit relating to our California ice facilities. The appellate Court was grant has granted the request by the state of California for what is known as an outbound Sherry.
This decision is a relation to lawsuits challenging a California law called AB 32, which would eventually phase out federal ice processing centers in the state of California.
GL in the United States Federal government filed lawsuits in federal court against the state of California based on our shared reviewed that the law is unconstitutional attempt to limit the authority Congress gave to the secretary of DHS to implement this country's immigration laws and policies.
While the district court ruled against Geo in the United States with respect to our claims related to our California ice processing centers, a three judge panel of the ninth circuit reversed the district court's decision in a two to one ruling.
In October of this of 'twenty one the three judge panel ruled that AP 32 conflicts with the federal law in violation of the supremacy clause in the U S Constitution and discriminates against the federal government in violation of the intergovernmental immune.
That a doctor.
The state of California, as the ninth Circuit Court of Appeals for Unbound hearing, which has now been granted resulting in the prior decision being vacated and the case being reheard in late June of 2022.
This time by a panel of 11 appellate judges.
We plan to continue to vigorously assert our position in this case, which we believe is based on well established constitutional legal precedent regarding the federal government's ability to implement and enforce our nations immigration law.
And policies.
Moving to a discussion of the department of Homeland Security's alternatives to detention programs. We've continued to see increased utilization of the intensive supervision appearance program, which we call <unk>.
Our bi subsidiary provides a full suite of monitoring and technology services under the <unk> contract to ensure compliance for individuals.
Under the ICF.
For individuals undergoing the immigration review process.
As has been publicly reported the number of individuals enrolled in the ICF program has continued to increase and currently exceeds 200000 participants.
In our managed only business our occupancy rates remained stable at 97% of capacity during the first quarter.
With respect to our owned and leased reentry service facilities occupancy rates have continued to be challenged by the impact of COVID-19 and ended the first quarter at approximately 44% of capacity.
As a reminder, this segment has been one of the most impacted by the pandemic.
New and takes out residential reentry centers have significantly slowed down and governmental agencies have opted for nonresidential alternatives, including furloughs home confinement and day reporting programs.
Consistent with these trends we continue to experience growth in our non residential reentry business with compensated mandates increasing by 15% year over year.
In the first quarter of 2022.
And our electronic monitoring and supervision segment's revenues grew by more than 45% year over year in this first quarter <unk>.
Despite the pandemic related challenges in our reentry services segment, we successfully renewed seven reset.
Reentry contracts during the first quarter of 2022 with four contracts with the Federal Bureau of prisons.
As we look forward to the remainder of this year, our operational focus remains on many mitigating the challenges of COVID-19, and achieving operational excellence in all of our service lines.
Recruitment and retention of our staff continues to be a top priority for our company as the labor market remains.
Very challenging, particularly at the state level.
Our retail offices on our management team continue to work closely with our government agency partners and state legislative bodies to address staffing and wage challenges, which are affecting correctional facilities across the country.
As a result of these efforts we've been able to increase wages in a number of states and we're continually.
Evaluating additional alternatives to improve our recruitment and retention efforts.
At the management and board level, we continue to focus on reducing our net recourse debt, we recognize the importance of allocating capital towards Delevering and taking several important actions over the last two years to accomplish this objective.
Since the beginning of the year, we have reduced our net since the beginning of 2020, we have reduced our net recourse debt by approximately $330 million, including approximately $80 million during the first quarter of 2022.
Moving forward, we expect to continue to allocate our excess cash flow towards further reduction of our net recourse debt.
As we have expressed to you in the past we believe we are a proactive a multifaceted approach to address our future debt maturities, which includes the continued focus on net recourse debt reduction and Delevering a.
A comprehensive review of potential sales of company owned assets and businesses.
And the ongoing discussions, we're having with our banks and our term loan lender and bondholder groups with the goal of executing a transaction or series of transactions to further reduce our funded recourse debt and extend our debt maturities.
After obtaining our objective of net recourse debt reduction and deleveraging we plan to evaluate the allocation of a portion of free cash flow to fund quality growth opportunities and potentially return capital to shareholders in the future.
Finally, before turning the call over to Brian Evans I would like to provide you an update on our environmental social and governance efforts.
Over the last three years, we've published comprehensive human rights and ESG reports.
<unk> have included enhanced disclosures each year.
We have made an organizational commitment to advancing our ESG goals and aspirations.
To that objective last year, we expanded our board committee structure to include a committee on criminal Justice and rehabilitation and human rights.
More recently during the first quarter of 2022, we've created a board committee to focus on cyber security and environmental sustainability.
We will also undertake a human rights risk assessment and due diligence process in 2022 as discussed in our proxy statement and during our annual shareholders meeting.
We expect this process to include engagement with internal and external stakeholders and a review of our global rights policy and the refinement of its implementation and the corresponding human rights training for our employees.
We look forward to continued engagement with our shareholders and other stakeholders as we evaluate additional human rights and ESG initiatives. At this time I will turn the call over to Brian Evans to address our debt reduction initiatives in more detail and review our financial results and updated guidance.
Thank you George good morning, everyone for the first.
<unk> 2022, we reported GAAP net income attributable to geo of approximately $38 million.
Adjusting for one time gains in the first quarter a year ago, our adjusted net income per diluted share increased by approximately 10% to 31.
On revenues of approximately $551 million for the first quarter of 2022.
Our <unk> adjusted EBITDA for the first quarter of 2022 increased by 5% to 64 per diluted share and by 15% to $125 million, respectively. Our quarterly financial performance continues to consistently exceed our expectations and for the trailing 12 months ended.
On March 31, 2022, our adjusted EBITDA has now surpassed any other 12 month period in our company's history.
<unk> performance is a testament to the strength of our diversified business segments, especially when considering the impact of the COVID-19 pandemic and the non renewal of several of our federal facility contracts during 2021.
Moving to our updated financial guidance for 2022, we expect full year net income attributable to geo to be between $145 million.
And $157 million on annual revenues of approximately $2 2 billion.
Adjusting for extraordinary items.
We expect adjusted net income to be in a range of $1 17.
To $1 27 per diluted share.
We expect full year 2022, <unk> to be in a range of $2 30.
<unk> to $2 40 per diluted share and.
And we expect adjusted EBITDA to be in a range of 453 million to $471 million for.
For the second quarter of 2022, we expect net income attributable to geo to be between $36 million and $39 million on quarterly revenues of $560 million and $565 million.
We expect second quarter 2022, adjusted net income to be between 30% and 32 cents per diluted share and apple to be between $56 58 per diluted share.
Compared to our first quarter 2022 results, our second quarter 2022 guidance reflects the previously announced discontinuation of our managed only George W. He'll Correctional facility contract in Pennsylvania, representing approximately $47 million in annualized revenues. Additionally, we experienced some favorable cost offsets.
The first quarter of 2022, which we don't expect to reoccur in subsequent quarters. Our full year guidance continues to reflect the expected non renewal of the two department of Justice direct contracts that have contract option periods expiring during 2022.
Combined annualized revenues of approximately $90 million.
Our guidance also reflects the impact of higher wages and bonuses for our facility staff, which we have implemented working collaboratively with our government agency partners and have been largely supported by increases in our per diem rate.
Additionally, at this time, our guidance does not assume a significant improvement in utilization utilization for our reentry centers and ice facilities, which currently remains significantly below historical levels in part we believe due to the impact of Covid.
We expect our effective tax rate for the full year 2022 to be approximately 29% exclusive of any discrete items.
Finally, as we have noted previously at this time our guidance does not reflect an increase in interest expense that could result from our ongoing discussions with our banks and our term loan lender and bondholder groups, we will update our financial guidance. Accordingly, if we are able to complete a transaction or series of <unk>.
<unk> for each 1% increase in our weighted average cost of debt our annualized interest expense would increase by approximately $18 million to $20 million based on our current net recourse debt.
Moving to an update on our engagement with our bank term loan lenders and bondholders working with our financial and legal advisers, we remain engaged in discussions with our banks and with the AD hoc groups of our term loan lenders and our bondholders.
Our goal with this process remains to reach agreement on and execute a transaction or series of transactions to reduced our recourse debt and extend the maturities of our outstanding senior unsecured notes revolving credit facility and term loan on reasonable terms, we believe that our company and our creditor groups.
Foreign interest in accomplishing this goal and we remain encouraged by our ongoing discussions with the creditor groups.
These discussions with our creditor groups generally occur on a confidential basis under Nondisclosure agreements. These non disclosure agreements expire periodically during the negotiation process.
And require us to disclose the current status of the negotiations so that the creditors and the various groups can freely trade in our debt securities.
As we noted in the 8-K, we filed with the SEC last night, despite achieving consensus on most material terms for a potential transaction or transactions. We had not yet reached a final definitive agreement by May 2022, which marked the stated expiration of the current non disclosure agreements signed by members of <unk>.
Our ad hoc.
<unk> lender and bondholder groups.
However, we believe that we have made meaningful progress since our first filing in January of this year as evidenced by the summary of the most recent proposal for a potential transaction, which was included in last night's 8-K filings.
Now that we have publicly provided an update on the status of the negotiations based on indications from the advisers to our credit agreements, we plan to actively continuing negotiations with our creditor groups and to facilitate such ongoing negotiations, we expect to enter into new non disclosure agreements with members of our AD hoc term loan.
Lender and Bondholder group shortly while there can be no assurances and while market and credit conditions can change at any time, we believe that a potential transaction or transactions can be completed on satisfactory terms.
As currently structured proposal requires approval from the company's lenders, including most of the banks in our revolving credit facility for it to move forward.
In addition, we plan to continue to examine other options to address our funded recourse debt and our near term maturities. We will continue to exit execute our multifaceted approach of focusing on deleveraging our balance sheet.
Since the beginning of 2020, we have reduced net recourse debt by approximately $330 million, including approximately $80 million during the first quarter of 2022.
As of March 31, 2022, we had close to $600 million in unrestricted cash on our balance sheet.
Taking into account our cash on hand, our net recourse debt currently stands at approximately $2 billion.
Not including nonrecourse debt finance lease obligations for the mortgage loan on our corporate headquarters.
We plan to continue to focus on net recourse debt reduction going forward consistent with our previously articulated objective of reducing net recourse debt by at least $150 million to $200 million annually. We.
We have also been exploring opportunities to sell company owned assets and businesses over the last 18 to 24 months through the end of April of 2022, we have completed sales transaction.
<unk> facility assets.
In this segment contracts in land totaling close to $70 million in proceeds.
Each represents substantial progress towards our previously articulated goal of between $100 million and $150 million.
And proceeds from sales at this time I will turn the call over to James Black for a review of our Geo secure services segment.
Thank you Brian .
Everyone. It is my pleasure to provide an update on Geo secure services.
During the first quarter of 2022, our operational efforts have remained focused on the continued mitigation of COVID-19.
While we are currently experiencing the lowest level of Covid cases in our secure services facilities since the beginning of the pandemic, our staff and management teams remain vigilant and the implementation of our mitigation strategies.
The steps we have taken from the start of the pandemic have been consistent with the guidance issued by the centers for disease control and prevention.
We continue to provide access to pay your time off for our employees and paid leaves so that they are able to remain home as needed and we continue to make face masks and cleaning supplies available across our facilities.
We made a significant investment of $2 million to deploy Abbott rapid test devices across our facilities and we continue to focus on testing as a key mitigation tool.
We also invested $3 $7 million to install a bipolar ionization systems at select secure services facilities to reduce the spread of airborne bacteria and viruses.
And we are working closely with our government agency partners and local health departments to continue to make vaccines available to those entrusted to our facilities.
We will continue to evaluate our mitigation steps and make adjustments based on updated guidance by the CDC and other best practices.
During the first quarter of 2020 to our employees and facilities also achieved several important milestones our facility successfully underwent 30 audits, including internal audits government reviews third party accreditations and certifications under the prison rape elimination Act.
Six of our secure services facilities received accreditation from the American Correctional Association with an average score of 99, 7%.
With two of those facilities, achieving a perfect accreditation score of 100%.
Additionally, three of our secure services facilities received U S Department of Justice certification under the prison rape elimination Act with all three facilities exceeding standards in several areas.
Our GTI transportation Division safely completed approximately $2 6 million miles driven in the United States and overseas during the first quarter of 2022.
Every quarter, our secure services facilities achieved several operational milestones, which are underpinned by our commitment to operational excellence of our employees. We are grateful for their continued dedication and hard work.
Moving to a review of the trends impacting our government agency partners starting at the federal level.
As of the first quarter of 2022, we have only one remaining company owned facility under direct contract with the Federal Bureau of prisons, and Thats, the 800 bed North Lake Correctional facility in Michigan.
As we have noted previously we expect this contract to not be renewed when the current option term expires at the end of September 'twenty two.
We have enjoyed a decade's loan partnership with <unk> and our facilities have provided high quality support services during times when the federal prison system was facing overcrowding challenges.
However over the last 10 years, the BOP populations have declined and this trend was accelerated by the Covid pandemic.
And in January of 2021, the President signed an executive order directing the U S Attorney general to not renew department of Justice contracts with privately operated criminal detention facilities.
Unlike the U.
U S Marshal populations have remained stable over the last several years.
The U S Marshals house, pretrial detainees, who are facing criminal charges or awaiting sentencing in federal courts. The.
The U S Marshal service does not own or operate detention facility.
The agency contracts for detention capacity, primarily through intergovernmental agreements and to a lesser extent direct contracts with private sector service providers.
Currently we have three facilities under direct contracts with the U S marshals and as mentioned previously our contracts were one of those facilities was recently extended for 90 days through the end of June 2022.
Although we continue to work on options for keeping the facility and operation. Our current guidance does not include this contract being further renewed or extended at the end of June .
With respect to ice processing centers. The agency relies on continue to face restrictions related to COVID-19.
As a result, the utilization of ice processing centers remains below historical levels.
Last month, the administration announced that title 42 public health restrictions will be lifted in late may.
While this decision is currently subject to a legal challenge in the federal courts.
S Department of Homeland Security has released a plan for southwest border security and preparedness.
Under this plan DHS will surge resources, including personnel transportation medical support and facilities to support border enforcement.
The plan will also seek to increase processing efficiency at border patrol stations and focus on administering consequences for unlawful entry, including removal detention and prosecution when appropriate.
With respect to funding levels for ice.
In early March the U S Congress approved the fiscal year 2022 appropriations Bill funding the federal government through the end of September .
Under the enacted appropriations Bill ice is currently funded for 34000 detention beds.
Appropriation bills for the upcoming fiscal year, which began on October one are currently under consideration by Congress.
As a service provider to ice and DHS, our focus continues to be on providing high quality support services and being prepared to respond to the department and agency needs.
The ice processing centers, where Geo provides support services offer $24 seven access to quality healthcare.
Access to legal counsel culturally sensitive meals approved by registered dietitians access to faith based and religious opportunities and enhanced recreational amenities, including artificial turf soccer fields covered pavilions and exercise equipment.
Moving to our state government agency partners nationwide Correctional agencies continue to face significant challenges in the recruitment and retention of staff as a result of challenging challenging labor labor market.
Over the last year, we have worked closely with our state government agency partners and legislative bodies to increase wages and bonuses at a number of our facilities.
We are continuing to explore other initiatives to improve the recruitment and retention of staff, which may include paying additional bonuses enhancing paid time off policies and finding alternatives to address the challenges of finding adequate and affordable housing.
With respect to recent contract activity in early April of 2022, we completed the previously announced transition of the Georgia WTO Correctional facility in Pennsylvania to County management.
In Arizona, we were.
Recently identified as the sole bidder and a competitive procurement for the Phoenix West Correctional and rehabilitation facility and.
And we'd expect the procurement process to conclude in the near future.
In Alabama, we completed the sale of our Idaho Perry County Correctional facility to the state of Alabama in April .
Additionally, during the most recent legislative sessions several of our state government partners considered a number of initiatives to replace older prison infrastructure with more modern facilities under public private partnerships.
In Arizona the state as previously announced the closure of several older prisons to be replaced with the increased use of public private partnership facilities.
In Georgia. The state budget included funding for the state to purchase or lease a public private partnership facility and separately build a new prison.
And Florida the state legislature approved the construction of one new 4500 bed Correctional facility as part of its Correctional modernization program.
Several other states are considering replacement facilities to replace older prisons.
At this time I would like to turn the call over to Ann Schlarb for a review of Geo care.
You James and good morning, everyone. I am pleased to provide an update on our Geo care business unit, which includes our reentry services and electronic monitoring and supervision segments as well as our Geo continuum of care programs.
Instant with the efforts that are secure services facilities, our geo care facilities and programs have remained focused on mitigating the impact of the COVID-19 pandemic implementing.
<unk> strategies and practices are consistent with the guidance issued by the CDC. Our efforts continue to be focused on increased sanitation testing deploying face map and additional screening measures for entry into our facilities and.
Ensuring that our employees have access to paid leave and paid time off to remain home is needed also remains a top priority.
We will continue to evaluate these steps and make adjustments based on updated guidance by the CDC and other best practices.
Moving to a review of our business segments are residential reentry services facilities continue to operate significantly below historical occupancy levels.
COVID-19 pandemic has had a significant impact on the utilization rates at our residential reentry centers.
Government agencies throughout the country have prioritized placement of individuals into nonresidential alternatives, including furloughs home confinement day reporting and electronic monitoring programs.
Despite a challenging operating environment. We have continued a successful streak of contract renewals with seven Geo reentry services contracts renewed during the first quarter of 2022.
Additionally, two of our residential reentry centers received accreditation from the American Correctional Association in the first quarter of 2022 with an average score of 99, 8%, including one perfect accreditation score of 100%.
And two other residential reentry centers received U S Department of Justice certification under the prison rape elimination act both exceeding standards in several areas.
While residential reentry centers have been negatively impacted by the pandemic. These trends have had the opposite effect on our nonresidential programs, which have continued to experience strong growth.
In the first quarter of 2022, our nonresidential reentry compensated manned days increased by 15% year over year with quarterly revenues increasing to $22 million.
Our electronic monitoring and supervision segment also continued to experience strong growth during the first quarter of 2022 with quarterly revenues, increasing by more than 45% year over year.
<unk> provides a full suite of electronic monitoring and supervision solutions products and technology on behalf of federal state and local agencies across the country.
At the federal level <unk> provides technology solutions holistic case management supervision monitoring and compliance services under the intensive supervision and appearance program or <unk>, which is a key component of the alternatives to detention under the U S Department of Homeland security.
<unk> has provided services under this program since 2004 and is currently operating under a five year contract that is effective through July of 2025.
As has been publicly reported the number of individuals enrolled in the <unk> program has continued to grow and currently stands at more than 200000 participants.
Earlier this year <unk> issued a competitive procurement for a new alternatives to detention program, which is incremental to ISS and involves young adults.
This new program is expected to have approximately 16000 participants and will likely closely resembled our family case management program that ice implemented seven years ago, which Geo care implemented back then.
We plan to bid on this new program for young adults and we believe that we are well positioned for this procurement given <unk> unparalleled capabilities and scale.
Finally, I'd like to highlight that we recently published our 2021 annual report on the Geo continuum of care, which is publicly available on our website.
The report highlights the achievements of our Geo continuum of care facilities in 2021, which completed approximately $2 8 million programming hours, while rewarding approximately 2100 high school equivalency degrees 6800, vocational certification and 5500 substance abuse treatment completions.
Our geo continuum of care integrates enhanced in custody rehabilitation, including cognitive behavioral treatment with post release support services that address community needs of released individuals, including housing food clothing transportation and employment assistance.
Between the beginning of 2016 and the end of the first quarter of 2022, the Geo continuum of care has allocated over $7 million in funding to support grants for released individuals to assist them with these basic community needs.
To our knowledge the scope and substance of our award winning Geo continuum of care program is unparalleled.
We believe it provides a proven successful model on how the $2 2 million people in the U S. Criminal Justice system can be better served and changing their lives. We are grateful for the continued dedication and commitment of our frontline employees. They have delivered high quality rehabilitation and reentry services to those.
And our care despite the difficult challenges of the COVID-19 pandemic at this time I'll turn the call over to Jose Gordo for closing remarks. Thanks, Dan we continue to be pleased with our strong operational and financial performance. Our robust results have allowed us to make substantial progress towards our objective of reducing net recourse debt.
Since the beginning of 2020, we have been able to reduce net recourse debt by approximately $330 million.
Our management team acknowledges the concerns related to our ability to access financing in the future.
Therefore, we recognize the importance of allocating capital towards debt reduction and we are working diligently to address our debt maturities.
We are continuing to work on our multifaceted approach, which includes a continued focus on net recourse debt reduction.
Comprehensive review of potential sales of company owned assets and businesses and.
And the ongoing engagement with our banks and with our lender and bondholder groups.
Our goal with this process remains to be able to reach agreement on and execute a transaction or series of transactions to reduce our recourse debt and extend the maturities of our outstanding senior unsecured notes our revolving credit facility.
And our term loan all on reasonable terms.
We are encouraged by the progress we have made since we began these discussions and while market and credit conditions can change at any time and there can be no assurances, we believe that a potential transaction or transactions can be completed on satisfactory terms.
As we continue these productive discussions we also plan to continue to evaluate other capital structure alternatives with the assistance of our financial and legal advisors.
As we have expressed in the past after attaining our objective of net recourse debt reduction we plan to evaluate the allocation of a portion of free cash flow to fund quality growth opportunities and potentially return capital to our shareholders in the future.
We believe that our continued financial performance is representative of the strength of our business and investment strategy.
Our strong cash flows are supported by a valuable company owned real estate assets and diversified contracts and tailing essential government services ranging from secure residential care to community based and technology solutions.
That completes our remarks, and we would be glad to take questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing the keys to withdraw from the question queue. Please press Star then two.
The first question is from Joe Gums of novel Capital. Please go. Please go ahead.
Good morning.
<unk> quarterly results thanks for the in depth presentation.
Youre welcome.
So you mentioned a couple of times about COVID-19 restrictions still on ice facilities.
I was wondering if you could kind of give us a little more in depth detail there.
And is there a certain occupancy level that the facilities are restricted add and if so what is that level.
For the facilities onto these COVID-19 restrictions and what else.
Is there under those that may be preventing you from increasing occupancy yet at both ice facilities.
Right now those restrictions are at 75% capacity for the ice facilities.
Okay.
<unk>.
Thank you for that and with the.
Hopefully the end of a title 42.
And reading the same reports I'm sure that you guys are reading, although you've got more feet on the ground and myself.
The expectation is there is going to be a surge.
Coming across the border.
Given that there is already a capacity restriction on the ice facilities.
Ice and talking with you guys about additional potentially.
Opening up some additional.
Facilities to handle some of this potential surge.
Ice is aware of our capacity is that all of our vacant facilities and we've had frequent discussions with them for utilization of the beds that we have available.
Okay.
Okay.
And also kind of switching.
Gears here for a second.
Guys.
Can you talk about the alternatives to detention program and in that memorandum that DHS put out they discuss I believe expectations that that program could hit 600000 participants by year end.
What could this potentially mean for G O.
If such a number were to hit and do you have the capacity to handle.
If the program increased from 200000 people today.
Up to 600000.
Well. This is Ann Thank you for your question I think the scalability, we've shown and growing to over 200000 indicates our capabilities and we are Fortunately, it's a program that is quite scalable with with.
Individuals our employees location and technology. So we do have the ability to expand the capacities that ice might request.
Would you have to make any significant capital expenditures to do that.
So again capital expenditures to meet that growth.
Theres app areas equipment, yes, there is but right Joe. So there is obviously there is equipment. So as more participants are brought online there is an increasing.
Our level of <unk>.
Capital, but the.
The way to look at is it's I would say self funding are for the most part that equipment is used within a year.
Or less and it pays for itself also some of the technology that is used is is application based or at least and so the model.
That's just part of the cost of using that.
Piece of technology, So theres really no capex related to that so you can't just linearly think that if it grows to whatever number that theres going to be.
Us.
Necessarily equivalent amount of increase in capital, it's really going to depend on.
What the government does and how they choose what different products that we make available to them some of those require capital some of them down.
Okay. Thanks, Thanks for the color there.
And then.
During the height of Joe and if I can just add one thing.
Yes can you hear me if I can just clarify but either way.
Any circumstance, where the program grows.
The net cash flow that comes from the program will grow it.
It will use capital in some way shape or form to support that growth, but on a net basis. It is going to generate more cash flow within the year.
Does that makes sense.
Yes, it's not like the corrections facility, where it sounds like a correctional facility, where you spend.
$100 million, and we expect an ROI of 13% to 15%, which implies a six or seven year payback, it's much more rapid than that.
Okay. Thanks for the clarification.
Yes.
And so.
During the height of Covid.
CT system was pretty much shut down and I know it has been.
Slowly reopening here any any feel for your guidance Hawaii.
On how open is the U S Court system is back to kind of full capacity because usually that that means.
Potential for additional participants.
Our detainees at the U S Marshal Sir level.
I don't think theres been much change to what we've done but we're not aware of much change it in the court system, but.
In an ice facilities I think we've been asked to expand our.
Capabilities regarding.
Virtual the virtual visitation.
With attorneys and.
With ice staff.
That would be located in other remote areas.
Ron Please try again.
Right.
Operator.
Okay.
Cellphone I'm still here because you guys still hear me yet.
Go ahead, Jeff Yes.
So you get that last part one last one for me, yes, yes, yes.
Yes about the ice staff in the attorneys and yes.
So obviously you know.
You did a really nice job here in the quarter.
Yeah.
His guidance over where you were in the fourth quarter.
And you mentioned on the adjusted EBITDA that even in these challenging times.
It's the highest level, it's ever been on a trailing 12 month basis.
But just kind of looking at it and say where are you finding the leverage here.
Even though revenues are let's call it flattish and the guidance.
Yes.
Adjusted net income per share range has gone up.
<unk> gone off.
Adjusted EBITDA has gone up so just trying to get a better idea of whats going on behind the scenes.
That allows you guys to continue to post.
Our forecast better numbers, even though kind of on a flat revenue basis.
Sure So I think.
Some of the flat revenue is just the transition between.
The facility is it or.
Inactive and we will be in the annualized impact of that inactive.
Those inactive facilities it mostly occurred last year, but as George mentioned and I think I mentioned.
Two additional facilities that May go inactive this year offset to some degree by.
Better cost within our operations.
Particularly in facilities as we've mentioned where occupancy levels are low and where there may be fixed payments that are tied to higher expected occupancy level. So are our costs are below normal and we're operating those facilities very efficiently right now and then.
The other pieces as Ann mentioned is.
The growth in <unk> overall, but in particular.
That contract.
Is.
It's a technology based service. So it has decent margins. So that is also offsetting some of that.
Revenue reduction that is coming from the secure services side.
We expedited queue up the good work guys.
The next question is from Mitra Ram Gopal at Sidoti. Please go ahead.
Yes, hi, good morning, and thanks for taking the questions.
First just Brian I wanted to get a little more color in terms of the.
Operating expenses in the first quarter I believe you mentioned there were some favorable.
Items that would not be reoccurring.
I wanted to get a sense of how much that helped you in the quarter.
So I think there was probably about $4 million to $5 million, we had an insurance recovery.
From one of our insurance.
Programs it was about $2 million or so and then we had a couple million dollars.
In net favorable adjustments to some reserves. So that's primarily what drove those.
One time sort of adjustments that we wouldn't necessarily expect going forward.
Okay. That's great and then quickly on the tax rate I think for the year.
We expect an effective rate to be around 29% I know.
<unk> was a little higher so we should expect that maybe to come in a little over the remaining quarters to get to that 29 is that the way to look at it.
Yes.
First quarter was a little bit higher due to some timing differences around.
Some of the equity compensation programs and it just hits in the first quarter, but I think the rest of the year will average out to that 29%.
Okay, Great and then how should we think of your ability to maybe.
So Michelle.
Leverage you have on the G&A side.
As the business.
Alright environment normalizes a little.
Post COVID-19.
I think we believe the G&A is the overhead structures properly set for the for the size of the company and we can leverage off that for additional growth as appropriate.
Okay Thats great.
And then curious on the labor market.
I believe onto federal aside.
Less of an issue but.
On the state level just wondering.
So things are going in terms of your ability to attract.
I'm pleased to meet capacity.
In cooperation with our state partners.
Additional.
Funding has been made available through the legislature for increased wages in a number of states in which we operate.
Florida.
Arizona and.
Oklahoma.
In Oklahoma.
Okay.
Thanks.
Just curious I see for example in states like New York.
Becoming less aggressive in terms of prosecuting.
Maybe some crimes that they might have done in the past curious if youre seeing any impact on that.
On your business or it's still too early.
No I'm not aware of any.
<unk> impact.
In our state business as a result of any.
Okay.
<unk> legislation on criminal Justice.
Okay. Thanks, and then on the buy side is obviously growing really nicely and you are investing.
And Capex.
Scaled that business just curious in terms of maybe the run rates.
Looking at <unk>, if we should expect that.
Continue over the next few as this business really.
Continues to grow above average.
So we have assumed some continued growth and obviously, we expect it to continue to grow over the years, but we are at a rapid or accelerated.
Rate of growth over the last year and a half as you know we've said I think about a year and a half ago the participant level was around.
80% to 90000 today, it's over two.
200000 in the ISR program alone and then obviously some of the other programs are.
Expanding as well, but we don't we hope that it continues to grow at that level, but we don't we're not we're not projecting that into our <unk>.
Estimated for this year or next year I think our estimates are more modest so to the degree that.
This level of.
Growth continues or continues for an extended period of time, then we will have.
An opportunity for some better performance as a result of that.
Okay. Thanks for taking the questions.
Again, if you have a question. Please press Star then one the next question is from Kevin O'brien of Imperial Capital. Please go ahead.
Hello, This is Kirk ludtke.
From Imperial.
Can everyone hear me.
Yes.
Hi.
Well. Thank you for taking the question a couple of follow ups one on monitoring.
What percentage of the people.
Being monitored under ICF.
Would have been detained otherwise.
We don't know the answer to that ice makes all the referrals and makes the decisions about attention our alternatives to detention.
Okay.
I mean.
My impression has been historically.
<unk> relatively low is that safe to say.
I really wouldnt be uncomfortable, giving an answer one way or another because it's really ice making the referrals I think you can look at the tension beds. You can look at the number of participants on ice app and draw some conclusions.
Okay. Thank you.
With respect to the.
Success of monitoring can you maybe talk a little bit about.
Compliance.
Yes.
As the program.
Having the desired impact on.
On.
Compliance.
So are you talking specifically about the ISR program correct.
Our contract with DHS I would refer you to.
Secretary Majorca has had a hearing on April 27% of the house Appropriators and he basically stated that we're seeing in responsiveness rate that is very high as we exercised our alternatives to detention in our supervisory capability. So in the departments words, yes, and as we look back we've operated this program for about 18 years.
Now and each year, we provide a report and outcomes to two ice and has each year been able to show high compliance rates with both court hearings attendance in compliance with the program's overall.
Great I'll look into that thank you.
Change.
Changing topics you mentioned AB 32, a couple of times.
Ice is the primary contractor it looks like five of the seven facilities you own in California.
Yes, correct, just California assume border enforcement, if the state prevails on title excuse me on AB 32.
No it would not it doesn't have that legal authority.
So our understanding.
So who would enforce the border and California.
State prevails.
I believe.
The department of Homeland security as authorized by Congress to enforce immigration laws and just going back to your previous question. Yeah, I think all the tension and all participation in the <unk> program is done on a selective basis.
You are aware of the large numbers of.
People coming across the border there there arent enough detention beds that are contracted or capacity within our company under the ICF program to take everyone who comes across the border.
Ice makes those decisions as to.
Using I guess congressional guidance as to who they think either requires detention and who is an appropriate participant in the ICF program. They do that we don't.
And the resources to detain or put everybody under ICF are are limited.
Got it. Thank you that's helpful.
I've been under the impression that the ICT revenue was incremental to your other businesses.
It is incremental and its growth is.
Historically unprecedented, but we are keeping up with that growth.
We.
Work with our.
Service providers and contractors vendors.
To forecast future growth and make sure we have all of the equipment and supplies necessary for that growth.
Got it. Thank you and then one last if I may.
With respect to labor.
Yes.
Can you talk a little bit about the change in staffing.
Year over year and and.
I know that there is some turnover also so I'm just curious how many people you actually have to hire.
In 2022.
Your staffing goals.
Yes.
In the federal facilities.
Thank you.
There was not much of a problem because those facilities have the highest levels of compensation.
The state facilities, there was a turnover.
And Fortunately most of our state clients have.
Authorize additional funding to increase not only their wages for correctional officers, but ours as well.
Right I'm just curious if.
Yes.
There is a because I suspect when you have to hire someone new.
A higher wage rate and I'm, just I'm just trying to quantify.
The impact.
Of the.
Where we are in terms of the labor.
Well the wage rates that you're open to it.
Georgia speaking to the <unk>.
We've given those pay increases to all of our existing staff already.
And the new staff will.
Start at those higher wages and we've also factored those wage increases plus where appropriate revenue offsets into our.
Forecast for the balance of the year.
Got it I appreciate it thank you.
This concludes our question and answer session I would like to turn the conference back over to George solely for closing remarks. Okay. Thank you for your participation in this call and we look forward to addressing you three months from now thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.